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How one Dubai bank, born in the eye of the storm, made it work

“We have been growing nicely over the years" and increasing profits, says CEO

Al Qemzi says the global financial crisis, which unfolded as he launched Noor Bank, was his most difficult challenge.

By Parag Deulgaonkar

Tue 14 Mar 2017 08:44 AM

Not many will dare to do what Hussain Al Qemzi did in 2008.

As the world’s major corporates struggled to survive, the UAE national launched a new bank in Dubai - and within 12 months reported a $138m profit.

With such a track record, it is no wonder the CEO of Noor Bank (originally called Noor Islamic Bank) currently stands resilient amid a challenging economy.

“For us to be born in that year - being in the ‘eye of the storm’ - was definitely a challenge. It taught us a lot of things, [particularly] how to be resilient and [become] fighters. And here we are after all that … and we are making money,” Al Qemzi says.

Noor Bank has remained profitable since the beginning. It is yet to reveal its 2016 financial results, but Al Qemzi tells Arabian Business the financial institution is “on track” to meet its profit and revenue targets.

“We have been growing nicely over the years and have been [increasing our] profit for the last three years,” he says.

“[Last year] was a tough year, not just for us but for the whole market due to the problems with the small and medium enterprises [struggling to repay debt]. However, I am confident that we will still be on track and will create value and profit for our shareholders.”

Noor Bank has one of the most high profile lists of shareholders, including the Office of the Crown Prince of Dubai (25.73 percent), the Investment Corporation of Dubai (22.71 percent) and the federal government’s Emirates Investment Authority (4.7 percent). The remaining shares are held by individuals who each own less than 5 percent, according to the bank’s website.

Noor Bank wants to be among the top 100 innovative companies in the world by 2020.

Al Qemzi was not a surprise choice to lead the institution. An industry veteran, he has previously served as the CEO of Sharjah Islamic Bank and as a former board member of both the Dubai Financial Market and Dubai International Financial Exchange. He was chief operating officer of the flagship Dubai International Financial Centre and is credited with much of the free zone’s initial groundwork.

Noor Bank is now a leading Islamic finance institution in the UAE, but it is not governed by any set of standard regulations. Al Qemzi says uniform standards need to be set by central banks and regulatory authorities to provide a level platform for all Islamic financial institutions and to safeguard customers.

That standardisation is more important as Islamic finance expands globally. The sector worldwide was estimated by Standard & Poor’s to be worth $2.1 trillion at the end of 2016, with the six Gulf states, Malaysia and Iran accounting for more than 80 percent.

“Most of the Islamic banks today have limited operations beyond their domestic markets; to truly take the sector global, the institutions have to grow much larger and operate across multiple international boundaries,” Al Qemzi says.

“As Islamic banks grow across multiple jurisdictions and work on transactions involving multiple banks it is important to create a common platform, an element of standardisation, which will be accepted by all. The real challenge is on the implementation side, as some of the international standards require robust regulation structures at central bank and government level, and require the readiness from Islamic financial institutions to adopt them.

“This will enable banks to execute larger and more complex transactions more efficiently, as these typically require multiple banks to participate and individual board standards may become an issue to unify. We have often seen syndicated Islamic transactions in the UAE market where individual Sharia-compliant institutions have used different underlying structures; this is not healthy for the industry. The UAE higher Sharia Authority as part of the UAE Central Bank is a good start towards achieving this goal.”

In May 2016, the UAE Cabinet approved the launch of a new Sharia Authority, which acts as a national regulator of the country’s seven Islamic banks, as well as Islamic divisions within conventional banks. The Sharia Authority falls under the UAE Central Bank, which is responsible for appointing and supervising board members who would determine a national set of principles for Islamic banking products. The Authority does not make the existing Sharia boards of individual institutions invalid but acts as a higher regulator of approved products.

“The Central Bank is likely to issue the standardised Islamic finance products guideline this year. And I think it should happen,” Al Qemzi says.

Noor Bank completed several capital market deals in 2016.

“There are differences within the institutions [in the UAE], and that creates uncertainty, which is not good for business. And I see no way but to move towards [standardisation]. We all have to agree to do things in a set manner, at least in one country. If this is successful, which I am sure it will be, it will add a lot of value and a lot of strength to Islamic banking within the country.”

However, a shortage of Sharia scholars is also impeding growth of the Islamic finance industry. Many institutions in the UAE are sharing advisors – who require a combination of expertise in finance, law and Sharia principles - and Al Qemzi says developing such expertise will help the country expand in the sector.

“Unfortunately, there is no clear mechanism for how we are getting fresh blood into the market. It is still one of the challenges impairing speedy growth of Islamic finance,” he says.

The CEO willingly concedes that Islamic banking has a long way to go to rival conventional banking, with the former existing for barely 50 years, while the latter has prevailed for over four centuries.

While Muslims globally are estimated to have $11.5trn in wealth, just $2trn is held in Islamic financial services, according to London-based Edbiz Corporation.

“If you look at our domestic market where the majority of the population is Muslims, Islamic banks still haven’t got the lion’s share. They are still much below the conventional banks, and so I see they have a long way to go,” Al Qemzi says.

The increase in conventional banks creating dedicated divisions for Islamic finance and Sharia-compliant products proves the enormity of the sector’s potential. But Al Qemzi says dedicated Islamic financial institutions can handle the competition.

“We are competing in a market with over 50 banks and our business has thus always been ready for competition,” he says.

“What makes us stand out is that we have always had Sharia compliance in our DNA. Ever since our inception, we were mandated to offer products that are ethical, innovative and address the direct needs of customers.”

While two of the UAE’s largest conventional banks, National Bank of Abu Dhabi and First Gulf Bank, are set to merge within weeks, creating a Goliath with assets of $178bn, similar moves are unlikely in the Islamic banking sphere, Al Qemzi says.

The UAE accounts for about 7 percent of the world’s total Islamic banking assets, according to the UAE Central Bank.

While there are dozens of conventional banks in the UAE, there are only seven Islamic institutions.

“I don’t see any mergers [among Islamic banks], but I advocate collaboration, which is vital among our banks,” Al Qemzi says. “We do hold a special forum under the UAE Banks Federation where we exchange views and look at issues that we face. Collectively, we try to pursue these issues.

“Islamic banks need innovation to integrate and position themselves to offer value and a better choice for Muslim and non-Muslim [customers] in order to grow. It matters being innovative and collaborative when it comes to products and to a community that we serve.”

That community is also moving more online, forcing banks to do the same. A tech-savvy Al Qemzi says the concept of customers entering bank branches is becoming “extinct”. Instead, he is advocating the concept of “every mobile being a branch”.

Meanwhile, he says traditional branches will evolve into multiple forms ranging from specialised customer service centres to unmanned virtual kiosks.

“It is unlikely that contact centres will disappear in the near future but will be transformed into customer service centres that are able to engage with customers through a different range of tools and platforms at the convenience of the customer,” Al Qemzi says.

Al Qemzi reveals Noor Bank is currently working on initiatives such as a mobile wallet involving wearable technology that can connect to another device nearby, such as a smartphone. As the human banker becomes obsolete and technology becomes cheaper, banks’ costs will obviously decline.

However, while staff numbers will inevitably be cut in the years to come, the CEO says maintaining a strong and consistent management team is key to ensuring the bank’s success at any time.

“Every change in the management results in a detour of strategy. You need time to build that experience and knowledge, but if you change [the management team] then you will lose all the work. You then start again with trial and error,” Al Qemzi says.

Noor Bank last week partnered with Damac Properties to provide preferential terms for end-user financing to help boost property ownership.

In May last year, the bank launched a $500m sukuk, or Islamic bond, to enhance its Tier 1 capital. Al Qemzi does not rule out a public listing as well, suggesting an initial public offering (IPO) “isn’t far away”.

“It all depends on our shareholders and what they want. The bank is still liquid, and probably when the need comes to go through that step [an IPO] it will happen,” he says.

In the meantime, he will be striving to maintain the already high standards set.